Industry groups say the current set-up leaves them vulnerable to huge claims that could wipe out entire practices Solicitors and accountants are lobbying the government to allow a change in partnership structures that would limit their liability, amid growing anxiety in the professions that just one 'mega-lawsuit' could wipe out entire practices. The Law Society has outlined a proposal to shift firms to a limited liability partnership (LLP) set-up, which would eliminate the current situation where lawyers can be held personally liable for negligence by a fellow partner. The society's counterpart in the accountancy profession, the Hong Kong Institute of Certified Public Accountants, is currently vetting a similar proposal internally, which will eventually be submitted to the government. Partners at law firms and accountancy practices have become increasingly wary of unlimited liability, given the larger deals and multimillion-dollar clients they are servicing. The push for change is coming from the top end of the market: city law firms and the 'Big Four' accountants. Under an LLP structure, a lawyer is liable only for his own negligence and not that of other partners. The personal assets of partners are thus protected from litigants' claims unless they, too, are found to be negligent. Britain amended its companies law in 2000 to enable solicitors and accountants to restructure into an LLP, but the take-up rate has been slow because of a requirement that they publish a full set of accounts and disclose other financial details. In Hong Kong, the Law Society is proposing that solicitors keep their privacy by not having to divulge details of their earnings. This could be done by changing the law relating to partnerships, rather than companies. According to Law Society council member Denis Brock, the change of status would have little effect on consumers. Individual firms would still be covered by the profession's indemnity scheme, which provides insurance of up to $10 million per claim at each practice. The Law Society is also proposing that those who deal with an LLP 'are at liberty to make inquiries about the adequacy of the firm's assets, and if they are not satisfied, to deal with competitors or require greater protection'. The Law Society, however, anticipates possible opposition to the proposal from consumer camps. 'Our overall concern is that we don't want to give the impression this is entirely self-serving,' said Deloitte Touche Tohmatsu partner Kenneth McKelvie, who has been drafting the accountants' proposal. 'It could be seen as accountants trying to protect themselves. 'I really do feel that this is a sensible structure, certainly for the professionals. It provides all the protection to a client that they need. They can still claim against the firm, and have professional indemnity. It's only when the firm's money runs out and insurance runs out [that] this applies. 'It would be all too easy to wipe out a firm,' Mr McKelvie added. 'We are dealing with some very large companies these days - some very large companies listing - all over the world. When things go wrong, we are in an environment that is litigious.' Both the Department of Justice and the Financial Services and Treasury Bureau would have to present the proposal to the Legislative Council for ratification. The Singapore government has proposed allowing LLPs, and Malaysia is also considering their adoption. Lawyer and legislator James To Kun-sun said there could be a cost benefit to such a change: 'If in Hong Kong as a financial business centre, we cannot allow the very big law firms to have limited liability, then of course it will indirectly force them to charge more.' Mr To said he did not expect the status change would appeal to smaller firms, given that claims against these practices are unlikely to exceed the $10 million mark guaranteed by the profession's insurance scheme. Fair weather partners The Proposal's basics Law Society and HK institute of Certified Public Accountants will propose limited liability paernership structures LLPs insulate lawyers and accountants from the consequences of other partners' negligence Britain approved LLPs in 2000, but insists on transparency in exchange HK Professionals are proposing LLPs not have to divulge earnings details.
